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Session Recap: ‘Historic’ — not label of pride

Posted April 25th, 2017 to Blog

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4/22/17

IFP Statement: ‘Historic’ session not a label of pride

Legislative session hits working families and traditions of good governance

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Statement of Iowa Fiscal Partnership • Mike Owen, Iowa Policy Project

To describe the 2017 Iowa legislative session as “historic” is not a label its leaders should wear with pride.

Iowans needed a legislative session that worked to raise family incomes and expand educational opportunity. Iowans had long demanded water-quality improvement measures. Many called for lawmakers to address the lack of fairness, adequacy and accountability in a tax system laden with special-interest breaks and costly subsidies to corporations.

Instead, Iowans got a continued ratcheting down of funding for PK-12 public education. There were significant and serious cuts in post-secondary education that will lead to tuition increases. We saw cuts to early-childhood education and other programs that serve our most at-risk children and neglect of the child-care assistance program that helps working families struggling to get by.

The Legislature continues to demand little or nothing of industrial agriculture in cleaning up the mess it has left in our waters. Lawmakers tried to dismantle the Des Moines Water Works board, limited neighbors’ right to complain in court about pollution, and eliminated scientific research at the Leopold Center. Their ultimate action on water merely diverts resources from other priorities, such as education and public safety.

Lawmakers largely left the tax issue to the next session. An overture in the House to reform Iowa’s reckless system of tax credits was a welcome acknowledgment that this issue needs attention, but devils in the details make further discussion of this issue during the interim even more welcome.

Perhaps as troubling as the destructive nature of policy content this session, Iowa’s image of adherence to good governance took a big hit. The most controversial policy changes came not through collaborative, public discussion in committee, let alone the 2016 political campaigns, but were often dumped into lawmakers’ laps with little opportunity for amendments.

In what could accurately be called a “session of suppression,” lawmakers achieved:

  • Wage suppression, with a bill to preempt local minimum wage increases while refusing to raise Iowa’s repressive, 9-year-old minimum of $7.25.
  • Workplace suppression, gutting collective bargaining protections for public employees, and making it more difficult for Iowans recover financially from injuries on the job.
  • Health-care suppression, achieved in workers’ compensation legislation while also refusing to reverse Governor Branstad’s disastrous move to privatize Medicaid.
  • Local suppression, whacking at local government control in a variety of areas: minimum wage, legal defenses against concentrated animal feeding operations (CAFOs), fireworks sales, and collective bargaining options.
  • Voter suppression, with a bill to make it more difficult for many citizens, particularly low-income and senior voters, to exercise their right to vote.
  • Suppression of children’s healthy development, with additional cuts to Early Childhood Iowa and Shared Visions that will reduce access to critical home visitation, child care and preschool services for some of our most at-risk youngsters.

Some legislators may boast of a “historic” session. History will mark 2017 as a low point in Iowans’ respect and care for each other, a legacy that will not be celebrated when future Iowans look back on this session and the closing act of Governor Branstad’s long tenure in office.

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The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit, Iowa-based organizations — the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org, and on the websites of the two partner organizations, www.iowapolicyproject.org and www.cfpciowa.org.


‘Nothing to see here, folks,’ 2017 edition

Posted September 28th, 2016 to Blog

slide_taxfoundation-cropBasic flaws remain in Tax Foundation business index

The Tax Foundation released the 14th edition of its State Business Tax Climate Index (SBTCI) today (Sept. 28). The basic flaws that have rendered it of little use as a guide to state economic policy remain. While a few methodological tweaks have been made, it is still a hodge-podge of over 100 different features of state tax law, mashed together into an index number. The components are weighted illogically, and the result is a ranking that bears little or no relation to the taxes businesses actually pay in one state versus another.

The Tax Foundation acknowledges that they are not measuring actual tax levels on business, but rather the states’ tax structure. But they provide no evidence that tax structure influences business decisions. If you were a business, what would you care more about: the bottom line amount you will pay, or whether there were three tax brackets or five tax brackets involved in the calculation that got you there? The Tax Foundation would have you count brackets, and ignore the dollars.

The SBTCI has separate components for the corporate income tax, the individual income tax, property taxes, etc. So let’s consider the corporate tax component. Even as a measure of “structure” somehow, it falls short because it leaves out two major determinants of corporate income tax liabilities — federal deductibility and the apportionment rule — while including numerous minor features. As a result, the corporate tax index is a meaningless number.

Furthermore, the corporate income tax is much less important than the property tax, for most businesses. According to the Council on State Taxation, the property tax accounted for 43 percent of all business taxes, the corporate income tax just 11 percent, in 2014. Yet in coming up with the overall state rankings, the latest Tax Foundation index weights the property tax 14.9 percent, the corporate income tax 19.7 percent. That makes states with high property taxes and low corporate income taxes look much better on the index than they really are, and penalizes the states with a robust corporate income tax, a high state share of education funding, and low property taxes.

To make matters worse, the index weights change every year. This makes it impossible to know if a change in a state’s rank from one year to the next is due to a change in tax law, or just a change in the weights.

More importantly, the whole focus on business tax competitiveness is misplaced. State and local taxes are a very small share of overall business costs. What really drives state growth is the rate of new business formation. And what matters most for entrepreneurial vibrancy is the education level of the state’s residents.

2010-PFw5464Editor’s Note: Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP), wrote this blog for GradingStates.org, IPP’s separate website devoted to promoting a better understanding of various state business climate rankings. For a look at components of state policies that can promote prosperity, see this page on the GradingStates.org site.


IFP End of Session Statement

Four months we won’t get back

IOWA CITY, Iowa — The Iowa Fiscal Partnership today issued this statement on the conclusion of the 2016 session of the Iowa General Assembly:

When the 2016 session began, Iowa faced a host of critical challenges: polluted water, slow job growth, a tax system skewed to benefit those at the top and those with strong lobbyists, and a wavering commitment to investments in education and services for low- and moderate-income working families — those most vulnerable in our state. There were fresh uncertainties about health care due to plans to privatize Medicaid.

This session has done little to ease any of those concerns, and nothing to meet those challenges for the long term. Public policy stands tall when it supports long-held, long-promoted values of our state. Education and a clean environment are among those. Neither had victories of note.

Work supports and wages
• Iowa remains one of only 21 states that has refused to raise the minimum wage above the spartan $7.25 per hour. Iowa’s minimum wage has remained at $7.25 longer than any state minimum wage — over eight years — and likely is guaranteed to reach the nine-year mark before the Legislature returns to the Capitol.
More: “Iowa: Once a Leader, Now a Laggard on Minimum Wage,” updated March 2016
http://www.iowapolicyproject.org/2016docs/160304-minwage-FS12.pdf
• Once again, lawmakers left in place Iowa’s severe eligibility limits for child care assistance, which can make it more costly for families to take a higher paying job.
More: “Reducing Cliff Effects in Iowa Child Care Assistance,” March 2014
http://www.iowapolicyproject.org/2014docs/140313-CCA-cliffs.pdf
• No action was taken to combat the problem of wage theft.
More: “Stolen Chances: Low-Wage Work and Wage Theft in Iowa,” September 2015
http://www.iowapolicyproject.org/2015Research/150902-wagetheft-xs.html

Education School funding remains too little and too late. Lawmakers in the House and Senate set State Supplemental Aid (SSA), which governs growth in per-pupil spending in Iowa schools, at 2.25 percent for Fiscal Year 2017 — a compromise below even the Governor’s meager proposal of 2.45 percent. With this, average per-pupil spending growth in Iowa will have been below 2 percent for seven years. School districts have already begun reducing teaching staff to cope with this low funding level, while property tax increases will be necessary in several districts that have declining enrollment. Money existed in the treasury to do much better.

In addition, the Legislature — which acted on FY2017 SSA about 13 months past the legal deadline — chose once again to violate the law by failing to set funding for the following budget year. SSA for Fiscal Year 2018 was to have been set by mid-February.
More: “Sensible context on school aid growth” blog post, March 29, 2016
https://iowapolicypoints.org/2016/03/29/sensible-context-on-school-aid-growth/

Water quality and school infrastructure
Another legislative session has come and gone without agreement on a sustainable strategy to improve Iowa’s water quality, which is threatened by agricultural pollution — either with regulation, funding or a combination of both. Iowa voters gave lawmakers a roadmap to a funding solution in 2010 with a constitutional amendment designating the next 3/8-cent sales tax increase to go toward land and water protection and enhancement. Neither the Governor nor a majority of legislators has taken that step, nor have they taken it to a vote even though the amendment passed the Legislature in two consecutive general assemblies before it went to the voters. Other proposals offered during the session would have diverted funds from existing and designated uses toward water quality, but not in sufficient amounts or without damaging other services.
More: “To fund water solutions, why not the obvious? Tax pollutants,” blog post, March 7, 2016
https://iowapolicypoints.org/2016/03/07/to-fund-water-solutions-why-not-the-obvious-tax-pollutants/

Continued state spending for business
The Governor’s unilateral action to expand a sales tax exemption for manufacturers was left in place; though scaled back, it will still take $21 million from next year’s budget at a time when schools and universities are scrapping for every dollar. Moreover, the exemption was combined with a more costly decision to “couple” with federal tax code changes for the current budget year.  The coupling cost in the current year, $98 million, was not budgeted by the Governor and Legislature, has no value to incentivize investment, and comes at a time other identified state priorities have seen funding held down or reduced on grounds that revenue is not available. The Legislature left open the question of whether coupling will continue next year, and thus uncertainties on new unbudgeted costs. Iowa policy makers are too quick to provide tax breaks without finding ways to fund our traditional priorities.
More: “High Cost of Conformity,” IFP Policy Brief, March 2, 2016
http://www.iowafiscal.org/high-cost-of-conformity/

Business tax credits have become an increasing share of state spending and are rising in cost at a faster pace than priorities in education and human services. Iowa taxpayers will see more of their dollars going to business subsidies next year, with little or no accountability for the public return on investment.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are at www.iowafiscal.org.

Sensible context on school aid growth

Posted March 29th, 2016 to Blog

There are many ways to measure Iowa’s lagging commitment to public schools. One is a comparison of growth in school aid to growth in state revenues.

As K-12 schools are a significant share of the state budget, it seems sensible that we would expect at least similar numbers of growth in one vs. the other.

Basic RGBThat is not the case.

While not a perfect comparison — there are moving parts with both figures — you can get an idea of the general trend in the accompanying graph. Net General Fund revenues have been coming in with average yearly increases around 4 percent,* while the key school-aid number, for Supplemental State Aid, has averaged about half that.**

The numbers below are taken from the latest Revenue Estimating Conference report, available here: https://dom.iowa.gov/sites/default/files/documents/2016/03/rec-projections-2016-03-16.pdf

  • The actual ending balance for FY2015 (the budget year ending last June 1) showed a net over-the-year revenue change from FY2014 of 5.1 percent. For that same period, schools had 4 percent Supplemental State Aid — the only year that high since FY2010.
  • For the current year, the most recent official revenue estimate is for a 3.3 percent state revenue increase, while schools are operating on budgets reflecting 1.25 percent per-pupil growth.
  • For FY2017, the estimate is for a 4.4 percent state revenue increase, and the deal just hatched at the Statehouse — 13 months late — is for schools to see 2.25 percent per-pupil growth.
  • For FY2018, for budgets to be approved a year from now, the state is expecting 4.1 percent revenue growth. The school aid number for FY2018 by law was to have been set a month ago so school districts could properly plan their budgets when enrollment counts are set this fall, and to negotiate staff contracts without big uncertainties. That number has not been set and apparently will not be during this legislative session, as neither the House nor the Governor is interested.

Understand, the revenue growth number is held artificially low by the growing and incessant demand for business tax breaks that undermine revenues. So the net revenue number would be much higher if legislators wanted it. Instead, they continue to give away hundreds of millions of dollars before they even reach the state treasury.

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

Alas, that is not the political world in which we live.

*The average growth for general fund revenues includes both actual results for FY11 through FY15, as well as projections by the Revenue Estimating Conference for FY16 and FY17.
**Supplemental State Aid — which is a percentage for per-pupil cost growth that districts must use in building an enrollment-based budget — includes the recent deal approved by the Senate and House and expected to be signed by Governor Branstad.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He covered state government for the Quad-City Times from 1980-85 and was editor and co-publisher of the West Branch Times from 1993-2001. He is serving his third term on the West Branch Board of Education, and is a member of the Professional Advisory Board of the University of Iowa School of Journalism and Mass Communications.

IFP Statement: Governor diverts revenue — and attention from choices on water and schools

IOWA CITY, Iowa — The Iowa Fiscal Partnership today issued this statement regarding Governor Branstad’s promotion of a study claiming economic benefits of his proposed diversion of sales-tax revenue to water projects:

The Governor’s office today asserted that his proposal to divert revenue from the school infrastructure sales tax to clean water initiatives “would mean more jobs for Iowa families.” This assertion is quite misleading, because the Governor puts his plan in a vacuum.

In fact, there are alternatives to the Governor’s plan, both in funding of water strategies and in the use of an already established statewide penny sales tax that he would divert from its intended purpose: school infrastructure. The study the Governor relied on makes it clear that researchers could not say whether the Governor’s diversion would create more jobs or fewer jobs than alternative uses of the funds.

The Governor’s news release cherry-picks the study’s findings, quoting a line from its executive summary, that on an annualized basis, “projected spending under this proposal would generate approximately $690 million in economic activity, 1,150 full-time direct employment positions and 2,800 total full-time positions.”

The statement conveniently ignores the next, and concluding, line of the researchers’ own summary of their findings: “However, it should be understood that alternative projects and proposals are likely to result in similar economic activity and employment.”

We make no conclusion about the researchers’ findings. That there are economic benefits in addressing Iowa’s significant problem with agriculture-induced water pollution will surprise no one.

What also would be no surprise is that economic benefits would result — perhaps more — from increased school infrastructure spending. The Governor’s plan diverts funds from that already designated purpose between 2017 and 2029, and would direct the lion’s share of growth in that revenue source to his preferences for the 20 years following.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are at www.iowafiscal.org.